It is well understood that the Internet has revolutionized how goods and services may be bought, sold, and advertised. The Internet makes it easy for users to find information about goods or services in which they may be interested. A person wanting to learn about a particular provider of goods and services, even if the person does not know the web site address for the provider, can easily locate the desired information using Internet search engines. Moreover, if the person wants to research particular goods or services rather than particular providers, users can retrieve the information they want using the same search engines.
However, providers of web services such as search engines, web-based mail, on-line reference sources, and other services also provide opportunities for providers of goods and services to identify potential customers. Internet search engines, to take just one example, not only allow would-be consumers to view information about providers, but also allow providers to present themselves to people indicating interest in what they sell based on the searches these people conduct.
For example, FIG. 1A shows a search engine web page 100 that allows a person to perform a web search. To perform the search, the person enters one or more searched terms in search field 102, then “clicks” on a search button 104 by directing a pointing device (not shown) over search button 104 and pressing a button on the pointing device. In this particular example, the user has chosen to perform a search 106 consisting of the term “Camera.”
As shown in FIG. 1B, and as familiar to most Internet users, the search engine returns a result screen 150 listing links 152 to web pages relevant to the user's search. Links 152 are presented and ranked according to their relevance to the search 106 (FIG. 1A).
However, links 152 are not all that is presented on results screen 150. Results screen 150 also includes advertisements 154, 156 and 158. Banner ad 154, displayed prominently across the top of results page 150, bears an advertisement for “BOB'S CAMERA OUTLET.” Banner ad 156, displayed aside of results screen 150, presents a banner ad for “DISCOUNT CAMERAS.” On another side of results screen 150, a list of sponsored links 158 is presented. Sponsored links 158 are links relevant to the user's search. However, sponsored links 158, like banner ads 154 and 156, appear not because of their particular relevancy to the search, but because providers have paid for their ads and or links to appear on this page. Pop-up windows (not shown) which present another window over search results window 150 also may be used to present advertisements.
Advertisers sponsoring advertisements 154, 156 and 158 pay the providers of search engine web page 100 to present their advertisements on search results page 150 when a user uses particular terms in his or her search that relate to the advertisers' goods and services. Typically, advertisers may pay the search engine provider each time one of their advertisements is presented. In Internet based advertising, these presentations of advertisements are termed “impressions.” Alternatively, advertisers may agree to pay the search engine provider each time that a person actually clicks on one of their advertisements to navigate to the advertiser's web site. As another alternative, advertisers may pay the search engine provider based on “an effective click-through rate” or “ECTR.” The effective click through rate is determined based on how many impressions of the advertisers advertisements are presented multiplied by an historic click through rate. The historic click through rate is determined by measuring what portion of impressions presented during a previous period of time resulted in users actually clicking on one of the advertiser's ads or links.
Advertising on the Internet offers a number of advantages. In contrast to mass media advertising, advertisements may be selectively presented to individuals who have expressed in an interest in a topic to which the advertiser's goods or services are related. In addition, advertising on the Internet does not require the kind of lead-time typically required to run an advertisement in print or broadcast media. Placement and timing of advertisements in print or broadcast media often are negotiated days or months in advance, resulting in a potentially long lag time in being able to advertise to potential customers. Again, by contrast, advertisements can be presented on the Internet in a matter of days or hours.
To further shorten the turnaround time to place advertisements on the Internet, web-based service providers may auction advertising opportunities to prospective advertisers, rather than negotiate individual agreements. Advertisers, such as advertisers behind ads 154, 156, and 158 (FIG. 1B), for example, bid to have their ads placed on search results page 150 when the search 106 includes the word “Camera.” Depending on the format of the auction, the advertisers may bid for a certain quantity of impressions, a certain number of clicks, etc.
Once the bidding is closed, as advertising opportunities arise, web-based service providers review the bids and sell the advertising space and impressions to the advertisers offering the highest bids. If the bids are per click, the bids may be adjusted according to an historic click-through rate associated with each bidder. Adjusting the bids in this manner allows the provider to evaluate bids both on the size of a bid and the likelihood the bidder's ads actually will be clicked and, thus, generate income for the provider. Also, bidders may pay prices they actually bid or, depending on the format of the auction, the prices paid may be lower. For example, in a “Vickery Auction,” the highest bidder is actually charged the price bid by the next highest bidder, or the “highest losing bid.” The web-based service provider typically will continue to sell advertisements to the highest bidder until a predetermined budget specified by the bidder for the auction period is exhausted.
Flow diagram 200 of FIG. 2 shows a typical process by which advertisements are sold. Flow diagram 200 starts at block 202. At decision block 204, it is determined if an item, which in this example is an advertising opportunity triggered by an Internet user using a search term for which one or more advertisers have bid, is available for auction. If it is determined that no item has become available for auction, flow diagram 200 loops to decision block 204 until an advertising opportunity becomes available. Once an item is available for auction, at block 206, the highest bidder still having sufficient budget allocated to cover the current price of the item, is identified. Thus, if the budget of the highest bidder has been exhausted, the next highest bidder having sufficient budget to cover the current price of the item is identified, and so on.
Once a highest bidder having available budget is identified at block 206, at block 208, the item is sold to the identified bidder at the current price. As previously described, the current price might be the bidder's actual bid, the next highest bidder's bid, or some other price determined by the format of the auction. At block 210, the bid price paid is debited to the budget of the bidder. At decision block 212, it is determined if the auction continues. The auction may end at the end of the auction period, if there are no more possibilities of advertising spaces to sell, or if all the bidder's budgets have been exhausted. If it is determined at decision block 212 if the auction continues, flow diagram 200 loops to decision block 204 to await the availability of the next item for auction. On the other hand, if it is determined at decision block 212 that the auction will not continue, flow diagram 200 ends at block 214.
Unfortunately, the bidding process may prove to be seemingly unfair to would-be advertisers, and income collected by the web-based service providers may be erratic. FIGS. 3A through 3C illustrate examples of undesirable effects that may result from this bidding process. FIG. 3A shows a plurality of bids 300. A plurality of bids 300a-300n have been presented by BIDDER A 302a, BIDDER B 302b, BIDDER C 302c, through BIDDER N 302n. Bids 300a-300n also include unit bid prices 304a-304n and auction budgets 306a-306n set by bidders 302a-302n. For purposes of the examples of FIGS. 3A-3B, it is assumed that the unit bid prices are for each impression.
FIG. 3B illustrates a plurality of auction results 310 resulting from bids 310a-310c showing how many impressions 318a-318c resulted based on each bid. BIDDER A's auction results 310a show that its auction budget of $300 306a was expended on 3,750 impressions 318a at a bid price of 8.0¢ per impression 304a. BIDDER B's auction results 310b show that its auction budget of $180 306b was expended on 3,000 impressions 318b at a bid price of 6.0¢ per impression 304b. Strikingly, BIDDER C's auction results 310c show that its auction budget of $100 306c earned 5,000 impressions 318c at a bid of only 2.0¢ per impression 304c. It may be troubling to BIDDER A that BIDDER B earned nearly as many impressions with a much smaller budget. However, it is likely very troubling to BIDDER A that BIDDER C earned one-third more impressions with one-third the budget, and having paid a unit price of only one-fourth what BIDDER A paid. It also may be troubling to the seller that so many advertising opportunities were sold at such a relatively low price.
Thus, disappointed with auction results 310, in a subsequent auction BIDDER A may choose to lower its bid dramatically; however, the results may again prove disappointing. FIG. 3C shows a plurality of auction results 320 for a subsequent auction. BIDDER B maintained its bid at 6.0¢ per impression 322b, but increased its budget to $300 324b. BIDDER B's bid 322b resulted in BIDDER B earning 5,000 impressions 326b. BIDDER C, perhaps encouraged by its previous auction results 310c (FIG. 3B) increased its bid to 5.0¢ per impression 322c, and increased its budget to $200 324c. Despite increasing its bid, however, BIDDER C earned 4,000 impressions 326c, paying more for fewer impressions compared to the previous auction.
BIDDER A, perhaps disappointed in having paid much more to earn fewer impressions than BIDDER C in the previous auction, lowered its bid to 2.0¢ per impression 322a, and lowered its budget to $100 324a. Unfortunately, for BIDDER A, as a result of the varying supply of advertising opportunities, in this auction, BIDDER A earned zero impressions 326a. 
As illustrated in the contrast between the examples of FIGS. 3B and 3C, bidders often are disappointed in auction results. Because of such unpredictable results, high bidders often feel cheated and decide to bid lower the next auction period. On the other hand, successful lower bidders may bid higher in hopes of even more success, or they may bid even lower hoping to save money. Both strategies, however, may fail.
Choosing how much to bid represents a strategic decision. However, no matter how much planning and strategizing goes into making the bids, the decision of what to bid is prone to error. Bidders may invest heavily in analysis and market research, yet still not be any more successful. This extra expense may cause bidders to lower their bids further, resulting in lower prices, and diminishing the income of the seller.